It’s possible to overcome debt, especially when you understand how you can repay each type of debt. From student loans to high-interest credit card debt, you can use different strategies to repay what you owe faster.
Keep reading to learn about your options for paying off your debt, including debt consolidation loans, balance transfer credit cards, and more-flexible methods like reducing non-essential spending.
With Credible, you can compare personal loan rates from various lenders in minutes.
- Make a budget
- Look for opportunities to lower monthly bills
- Reduce nonessential spending
- Consider the debt avalanche method
- Try the debt snowball method
- Transfer your balance to a 0% APR credit card
- Apply for a personal loan
- Take on a side hustle
Your first step is to create a budget that’s specific to your unique financial situation. You can download easy-to-use budget templates that show you how to structure your budget to achieve your financial goals. You can also create your own budget using nothing more than your expenses, income, and goals. Here’s how:
- Write down your expenses, starting with recurring bills like rent, utilities, and insurance.
- List your other expenses, like groceries, cable, and minimum credit card or loan bills.
- Write down how much money you make each month, including any additional income, like child support payments.
- Subtract your expenses from the money you make to determine how much is left over.
- Put any excess toward paying off your debt, and assuming that you have the same amount left over each month, you can project how long it’ll take to pay down your debt.
Many online tools can help you create and stick to your budget. Consider free resources from MyMoney.gov like calculators, budgeting worksheets, and checklists. You can also download personal finance and budgeting apps, such as BillGuard and Mint.
The key to getting your budget to work for you is by following it closely. You can always adjust your budget when your income increases or you pay down debts.
Once you’ve established your budget, review your recurring payments to find opportunities for savings. Your mortgage or rent, phone bill, and insurance are essential expenses, but you may be able to cut back each month in other areas.
If you have both car and homeowners insurance, for example, consider bundling with one company to save each month. Comparison shop to find a more affordable cellphone plan, and consider switching internet providers to take advantage of promotions for new customers. Cutting a few dollars from multiple recurring payments can save you significantly over the year — and free up more money to put toward your debt.
If you opt for a personal loan to help pay off your high-interest debt, you can use Credible to compare personal loan rates from multiple lenders.
If you can find ways to reduce non-essential spending, it can go a long way toward decreasing your debt and increasing your savings. Non-essential spending could be purchasing lunch or a cup of coffee each day at work, or paying for multiple streaming services you rarely use.
Take inventory of your spending; your bank may provide you with a chart in your monthly statement that divides your spending into categories, like entertainment and bills. Go through the list and identify where you could replace non-essential spending with an opportunity to save.
Want to pay off debt as fast and effectively as possible? You may have success with the debt avalanche method.
With this method, you pay off your debt with the highest interest rate first, while still making the minimum monthly payments on all your other debts to stay in good standing. After you pay off the debt with the highest interest rate, you move to the debt with the next-highest interest rate, and so on, until you’ve repaid all your debts.
The debt avalanche method helps you limit the amount of additional debt you’ll tack on due to high interest rates.
The debt snowball method is similar to the debt avalanche method, but with this debt repayment strategy, you put your extra cash each month toward paying off the debt with the smallest balance first. You then knock out the next-smallest debt, until you’ve repaid all your debt. (You’ll still make the minimum payments on all your debts as you tackle each balance.)
The debt snowball method can motivate you to keep going as you gain momentum and see your debts begin to disappear.
If you have high-interest credit card debt, consider transferring your balance to a credit card with an introductory 0% annual percentage rate, or APR. Some balance transfer cards offer 0% APRs for up to 18 months.
The main benefit of a balance transfer card is that you can pay down your credit card debt more affordably, since you won’t be paying interest during that time.
But keep in mind that this strategy can be risky. If you don’t repay your debt before the end of the introductory period, you’ll have to pay interest on your remaining balance at the normal rate, and credit card APRs can be high. The average credit card APR in November 2021 was 16.44%, according to the Federal Reserve. This can end up increasing your overall debt and prolonging repayment.
You’ll typically need a good credit score to qualify for a 0% APR balance transfer card.
Another option to help you pay off your debt faster is to take out an unsecured personal loan that you use to consolidate your higher-interest debts.
Debt consolidation loans give you a lump sum of money upfront that you use to pay off your existing balances. You’ll then begin repaying the debt consolidation loan, and you’ll only have one monthly payment. If you have a good credit score, personal loan rates can be lower than credit card rates, saving you money. With a lower interest rate, you can pay down your principal balance faster and eliminate multiple debts at once.
Be aware, though, that you should try to avoid creating any new high-interest debt while you’re paying off your personal loan. You might find yourself struggling financially if you have a personal loan payment and credit card payments every month.
Credible lets you easily compare personal loan rates, all in one place.
Earning additional income can also help you pay off your debt. Technology has revolutionized opportunities to start a side hustle, allowing you to earn money selling goods on sites like Etsy and selling services on Fiverr. You can also drive for a rideshare app in your spare time or deliver food.
You could even consider the traditional route of formally taking on a second job, which may provide higher levels of income at a quicker rate.
Whichever you choose, it’s critical that you use this income only for paying off your debt. Once you’ve paid off your debt, consider placing your secondary income in a savings account to create an emergency fund.